Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended
December 31, 1996
Commission file number 0-2504
MINE SAFETY APPLIANCES COMPANY
A Pennsylvania Corporation
IRS Employer Identification No. 25-0668780
121 Gamma Drive
RIDC Industrial Park
O'Hara Township
Pittsburgh, Pennsylvania 15238
Telephone 412/967-3000
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock Purchase Rights
Common Stock, no par value
(COVER PAGE)
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-2504
MINE SAFETY APPLIANCES COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0668780
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
121 Gamma Drive
RIDC Industrial Park
O'Hara Township
Pittsburgh, Pennsylvania 15238
- ----------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412/967-3000
- ----------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock Purchase Rights
- --------------------------------------------------------------------------------
(Title of Class)
Common Stock, no par value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ X ]
As of February 21, 1997, there were outstanding 5,195,022 shares of common
stock, no par value including 600,000 shares held by the Mine Safety Appliances
Company Stock Compensation Trust. Total market value of outstanding voting
stock as of February 21, 1997 was $296,778,619. The aggregate market value of
voting stock held by non-affiliates as of February 21,1997 was $164,906,127.
1
(COVER PAGE)
DOCUMENTS INCORPORATED BY REFERENCE
The following documents have been incorporated by reference:
FORM 10-K
DOCUMENT PART NUMBER
- -------- -----------
(1) Annual Report to Shareholders
for the year ended
December 31, 1996 I, II, IV
(2) Proxy Statement filed
pursuant to Regulation 14A
in connection with the registrant's
Annual Meeting of Shareholders to
be held on April 23, 1997 III
2
PART I
Item 1. Business
- -----------------
Products and Markets:
--------------------
The primary business of the registrant and its affiliated companies is the
manufacture and sale of products designed to protect the safety and health of
workers throughout the world.
Principal products include respiratory protective equipment that is air-
purifying, air-supplied and self-contained in design. The registrant also
produces instruments that monitor and analyze workplace environments and control
industrial processes. Personal protective products include head, eye and face,
body and hearing protectors.
Many of these products are sold under the registered trademark "MSA", and
have wide application for workers in industries that include manufacturing, fire
service, power generation, telecommunications, mining, chemicals, petroleum,
construction, pulp and paper processing, transportation, government, automotive,
aerospace, asbestos abatement, and hazardous materials clean-up.
Other products manufactured and sold, which do not fall within the category
of safety and health equipment, include boron-based and other specialty
chemicals.
The registrant and its affiliated companies are in competition with many
large and small enterprises. In the opinion of management, the registrant is a
leader in the manufacture of safety and health equipment.
Orders, except under contracts with the U.S. government agencies and with
international governments, are generally filled promptly after receipt and the
production period for special items is usually less than one year. The backlog
of orders under contracts with the U.S. government agencies and certain
international governments is summarized as follows:
December 31
-------------------------
1996 1995 1994
------- ------- -------
(In thousands)
-------------------------
U.S. Government Agencies $14,400 $30,400 $36,200
International Governments 900 7,900 8,800
Approximately $900,000 under contracts with the U.S. government agencies
and $300,000 with international governments are expected to be shipped after
December 31, 1997.
3
Sales of products to U.S. government agencies continued to decrease in
1996. Incoming orders were significantly less than shipments in 1996, and
significantly lower than 1995 incoming orders. Further information with respect
to the registrant's products, operations in different geographic areas, equity
in earnings and assets of international affiliated companies, and significant
customers is reported at Note 5 of Notes to Consolidated Financial Statements
contained in the registrant's Annual Report to Shareholders for the year ended
December 31, 1996, incorporated herein by reference.
Research:
--------
The registrant and its affiliated companies engage in applied research with
a view to developing new products and new applications for existing products.
Most of its products are designed and manufactured to meet currently applicable
performance and test standards published by groups such as ANSI (American
National Standards Institute), MSHA (Mine Safety & Health Administration), NIOSH
(National Institute for Occupational Safety and Health), UL (Underwriters'
Laboratories), SEI (Safety Equipment Institute) and FM (Factory Mutual). The
registrant also from time to time engages in research projects for others such
as the Bureau of Mines and the Department of Defense or its prime contractors.
Registrant-sponsored research and development costs were $19,122,000 in 1996,
$20,366,000 in 1995, and $20,575,000 in 1994.
In the aggregate, patents have represented an important element in building
up the business of the registrant and its affiliates, but in the opinion of
management no one patent or group of patents is of material significance to the
business as presently conducted.
General:
-------
The company was founded in 1914 and is headquartered in Pittsburgh,
Pennsylvania. As of December 31, 1996, the registrant and its affiliated
companies had approximately 4,200 employees, of which 1,900 were employed by
international affiliates. None of the U.S. employees are subject to the
provisions of a collective bargaining agreement.
In the United States and in those countries in which the registrant has
affiliates, its products are sold by its own salespersons, independent
distributors and/or manufacturers' representatives. In international countries
where the registrant has no affiliate, products are sold primarily through
independent distributors located in those countries.
4
The registrant is cognizant of environmental responsibilities and has taken
affirmative action regarding this responsibility. There are no current or
expected legal proceedings or expenditures with respect to environmental matters
which would materially affect the operations of the registrant and its
affiliates.
Generally speaking, the operations of the registrant and its affiliates are
such that it is possible to maintain sufficient inventories of raw materials and
component parts on the manufacturing premises.
Equipment and machinery for processing chemicals and rubber, plastic
injection molding equipment, molds, metal cutting, stamping and working
equipment, assembly fixtures and similar items are regularly acquired, repaired
or replaced in the ordinary course of business at prevailing market prices as
necessary.
In the third quarter of 1996, the company acquired Rose Manufacturing
Company, a leading manufacturer in the growing fall protection portion of the
safety products business, and Better Breathing, Inc., a leading innovator of
disposable respiratory protection products. In 1992 the company decided to
discontinue the operations of Transfer-Metallisierte Produkte GmbH (TMP), a
joint venture in Germany to produce metallized paper. Operating activities
ceased during 1993. During 1996 the company completed the assets valuation
process and the settlement of its liabilities, the effects of which were not
significant to the consolidated financial position and results of operations.
Further information about the registrant's business is included in Management's
Discussion and Analysis at pages 10 to 12 of the Annual Report to Shareholders,
incorporated herein by reference.
5
Executive Officers:
------------------
All Positions and Offices
Name Age Presently Held
- ---- --- -------------------------
J. T. Ryan III 53 Chairman and
Chief Executive Officer
T. B. Hotopp 55 President
J. E. Herald 55 Vice President - Finance
(Chief Financial Officer)
W. E. Christen 52 Vice President
G. W. Steggles 62 Vice President
G. R. McGee 56 Vice President
D. H. Cuozzo 63 Vice President and Secretary
D. L. Zeitler 48 Treasurer
All the executive officers have been employed by the registrant since prior
to January 1, 1992 and have held their present positions since prior to that
date except as follows:
(a) Mr. Hotopp was elected President on December 18, 1996. Prior to that
time, he was Senior Vice President and General Manager, Safety
Products.
(b) Mr. Steggles was employed by the registrant on May 4, 1992 and elected
Vice President. From prior to January 1, 1992 until he joined the
registrant, Mr. Steggles was Vice President of International Marketing
and Sales with the BMY Division of Harsco Corp., a manufacturer of
tracked and wheeled vehicles.
(c) Mr. McGee was employed by the registrant on January 2, 1997 and was
elected Vice President and General Manager, Instrument Division. From
prior to January 1, 1992 until July, 1996, Mr. McGee was President and
Chief Executive Officer of Balzer High Vacuum Products. From July, 1996
until he joined the registrant, he was President and Chief Executive
Officer of Pfeiffer Vacuum Technology, Inc., which is a spinoff of
Balzer High Vacuum Products.
(d) Mr. Cuozzo was elected Vice President on April 27, 1995. Prior to that
time, he was Secretary.
The executive officers of the registrant serve at the pleasure of the Board
of Directors and are not elected to any specified term of office.
6
The primary responsibilities of these officers follow:
Individual Responsibilities
- ---------- ----------------
Mr. Hotopp U.S. operations
Mr. Christen European operations
Mr. Steggles International operations outside the U.S. and
Europe
Mr. McGee Research, product development, manufacturing and
marketing of instrument and battery products in
the U.S.
Mr. Cuozzo General Counsel and corporate taxes
Mr. Zeitler Cash and risk insurance management
Item 2. Properties
- ------------------
World Headquarters:
------------------
The registrant's executive offices are located at 121 Gamma Drive, RIDC
Industrial Park, O'Hara Township, Pittsburgh, Pennsylvania 15238. This facility
contains approximately 138,000 sq. ft.
Production and Research Facilities:
----------------------------------
The registrant's principal U.S. manufacturing and research facilities are
located in the Greater Pittsburgh area in buildings containing approximately
1,049,000 square feet. Other U.S. manufacturing and research facilities of the
registrant are located in Esmond, Rhode Island (184,000 sq. ft.), Jacksonville,
North Carolina (107,000 sq. ft.), Lyons, Colorado (10,000 sq. ft.), Sparks,
Maryland (37,000 sq. ft.), Dayton, Ohio (23,000 sq. ft.), Lawrence,
Massachusetts (42,000 sq. ft.), and Englewood, Colorado (41,000 sq. ft.).
7
Manufacturing facilities of international affiliates of the registrant are
located in Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico,
Peru, Scotland, Spain, and Sweden. The most significant are located in Germany
(approximately 431,000 sq. ft., excluding 127,000 sq. ft. leased to others), and
in Glasgow, Scotland (approximately 96,000 sq. ft., excluding 44,000 sq. ft.
leased to others); research activities are also conducted at these facilities.
Virtually all of these buildings are owned by the registrant and its
affiliates and are constructed of granite, brick, concrete block, steel or other
fire-resistant materials. The German facility is owned subject to encumbrances
securing indebtedness in the aggregate amount of $3,348,000 as of December 31,
1996.
Sales Offices and Warehouses:
----------------------------
The registrant and its U.S. affiliates own two warehouses and lease 13
other distribution warehouses with aggregate floor space of approximately
201,000 sq. ft. in or near principal cities in 11 states in the United States.
Leases expire at various dates through 1999. Sales offices and distribution
warehouses are owned or leased in or near principal cities in 24 other countries
in which the registrant's affiliates are located.
Item 3. Legal Proceedings
- --------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during fourth
quarter 1996.
8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
- --------------------------------------------------------------------------------
Incorporated by reference herein pursuant to Rule 12b - 23 are
Item 5 - "Common Stock" appearing at page 12
Item 6 - "Five-Year Summary of Selected Financial Data" appearing at
page 23
Item 7 - "Management's Discussion and Analysis" appearing at pages 10 to 12
Item 8 - "Financial Statements and Notes to Consolidated Financial
Statements" appearing at pages 13 to 22
of the Annual Report to Shareholders for the year ended December 31, 1996. Said
pages of the Annual Report are submitted with this report and pursuant to Item
601(b)(13) of Regulation S-K shall be deemed filed with the Commission only to
the extent that material contained therein is expressly incorporated by
reference in Items 1, 5, 6, 7, 8 and 14 (a) hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
Not applicable.
9
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Incorporated by reference herein pursuant to Rule 12b - 23 are (1) "Election
of Directors" appearing at pages 1 to 3, (2) "Other Information Concerning
Directors and Officers" appearing at pages 4 to 10 (except as excluded below),
and (3) "Stock Ownership" appearing at pages 11 to 14 of the Proxy Statement
filed pursuant to Regulation 14A in connection with the registrant's Annual
Meeting of Shareholders to be held on April 23, 1997. The information appearing
in such Proxy Statement under the caption "Compensation Committee Report on
Executive Compensation," and the other information appearing in such Proxy
Statement and not specifically incorporated by reference herein, including
without limitation the information under the captions "Comparison of Five-Year
Cumulative Total Return" and "Shareholder Rights Plan," is not incorporated
herein.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) 1 and 2. Financial Statements
The following information appearing on pages 13 to 22 inclusive in the
Annual Report to Shareholders of the registrant for the year ended December 31,
1996, is incorporated herein by reference pursuant to Rule 12b-23.
Report of Independent Accountants
Consolidated Balance Sheet - December 31, 1996 and 1995
Consolidated Statement of Income - three years ended December 31, 1996
Consolidated Statement of Earnings Retained in the Business - three years
ended December 31, 1996
Consolidated Statement of Cash Flows - three years ended December 31, 1996
Notes to Consolidated Financial Statements
Said pages of the Annual Report are submitted with this report and, pursuant to
Item 601(b)(13) of Regulation S-K shall be deemed to be filed with the
Commission only to the extent that material contained therein is expressly
incorporated by reference in Items 1, 5, 6, 7, 8 and 14 (a)(1) and (2) hereof.
The following additional financial information for the three years ended
December 31, 1996 is filed with the report and should be read in conjunction
with the above financial statements:
Report of Independent Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not material or
the required information is shown in the financial statements and notes to the
financial statements listed above.
11
(a) 3. Exhibits
(3)(i) Restated Articles of Incorporation as amended to April 27,
1989, filed in Form 10-Q on August 5, 1994, are incorporated
herein by reference.
(3)(ii) By-laws of the registrant, as amended to August 29, 1990,
filed in Form 10-Q on November 13, 1995, are incorporated
herein by reference.
(4) Rights Agreement dated as of February 10, 1997 between the
registrant and Norwest Bank Minnesota, N.A., as Rights
Agent, filed as Exhibit 1 to the registrant's Form 8-A on
February 25, 1997, is incorporated herein by reference.
(10)(a) * 1987 Management Share Incentive Plan, filed in Form 10-K on
March 25, 1994, is incorporated herein by reference.
(10)(b) * 1990 Non-Employee Directors' Stock Option Plan, as amended
to April 27, 1994, filed in Form 10-Q on August 5, 1994, is
incorporated herein by reference.
(10)(c) * Executive Insurance Program, filed in Form 10-Q on August 5,
1994, is incorporated herein by reference.
(10)(d) * December 29, 1993 Consulting agreement with Leo N. Short,
Jr., filed in Form 10-K on March 25, 1994, is incorporated
herein by reference.
(10)(e) * Board of Directors April 24, 1984 Resolution providing for
payment by the Company to officers the difference between
amounts payable under terms of the Company's Non-
Contributory Pension Plan and the benefit limitations of
Section 415 of the Internal Revenue Code, filed in Form 10-Q
on May 11, 1995 is incorporated herein by reference.
(10)(f) Trust Agreement as of June 1, 1996 between the registrant and
PNC Bank, N.A. re the Mine Safety Appliances Company Stock
Compensation Trust, filed herewith.
* The exhibits marked by an asterisk are management contracts or compensatory
plans or arrangements.
12
(a) 3. Exhibits (continued)
(13) Annual Report to Shareholders for year ended December 31, 1996
(21) Affiliates of the registrant
(23) Consent of Price Waterhouse LLP, independent accountants
(27) Financial Data Schedule (filed in electronic format only)
The registrant agrees to furnish to the Commission upon request copies
of all instruments with respect to long-term debt referred to in Note
4 of the Notes to Consolidated Financial Statements filed as part of
Exhibit 13 to this annual report which have not been previously filed
or are not filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1996.
13
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MINE SAFETY APPLIANCES COMPANY
March 26, 1997 By /S/John T. Ryan III
- --------------------- ---------------------------------
(Date) John T. Ryan III
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
------------- --------- --------
/S/John T. Ryan III Director; Chairman of the Board March 26, 1997
- -------------------------- and Chief Executive Officer
John T. Ryan III
/S/James E. Herald Vice President - Finance; March 26, 1997
- -------------------------- Principal Financial and
James E. Herald Accounting Officer
/S/Joseph L. Calihan Director March 26, 1997
- --------------------------
Joseph L. Calihan
/S/Calvin A. Campbell, Jr. Director March 26, 1997
- --------------------------
Calvin A. Campbell
/S/G. Donald Gerlach Director March 26, 1997
- --------------------------
G. Donald Gerlach
/S/Helen Lee Henderson Director March 26, 1997
- --------------------------
Helen Lee Henderson
/S/Leo N. Short, Jr. Director March 26, 1997
- --------------------------
Leo N. Short, Jr.
Report of Independent Accountants
on Financial Statement Schedule
February 17, 1997
To the Board of Directors of
Mine Safety Appliances Company
Our audits of the consolidated financial statements referred to in our report
dated February 17, 1997, appearing on page 13 of the 1996 Annual Report to
Shareholders of Mine Safety Appliances Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K), also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
F-1
SCHEDULE II
MINE SAFETY APPLIANCES COMPANY AND AFFILIATES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
1996 1995 1994
------ ------ ------
Allowance for doubtful accounts:
Balance at beginning of year $2,640 $2,102 $2,516
Additions -
Charged to costs and expenses 812 949 741
Deductions from reserves (1) 459 411 1,155
------ ------ ------
Balance at end of year $2,993 $2,640 $2,102
====== ====== ======
(1) Bad debts written off, net of recoveries.
F-2
EXHIBIT (10)(f)
MINE SAFETY APPLIANCES COMPANY
STOCK COMPENSATION TRUST
Effective as of June 1, 1996
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE 1.
- ----------
Trust, Trustee and Trust Fund............................................ 1
- -----------------------------
1.1. Trust....................................................... 1
-----
1.2. Trustee..................................................... 2
-------
1.3. Trust Fund.................................................. 2
----------
1.4. Trust Fund Subject to Claims................................ 2
----------------------------
1.5. Use of Trust................................................ 3
------------
1.6. Definitions................................................. 3
-----------
ARTICLE 2.
- ----------
Contributions and Dividends.............................................. 5
- ---------------------------
2.1. Contributions............................................... 5
-------------
2.2. Dividends................................................... 6
---------
ARTICLE 3.
- ----------
Release and Allocation of Company Stock.................................. 6
- ---------------------------------------
3.1. Release of Shares........................................... 6
-----------------
3.2. Allocations................................................. 6
-----------
ARTICLE 4.
- ----------
Compensation, Expenses and Tax Withholding............................... 6
- ------------------------------------------
4.1. Compensation and Expenses................................... 6
-------------------------
4.2. Withholding of Taxes........................................ 7
--------------------
ARTICLE 5.
- ----------
Administration of Trust Fund............................................. 7
- ----------------------------
5.1. Management and Control of Trust Fund........................ 7
------------------------------------
5.2. Investment of Funds......................................... 7
-------------------
5.3. Trustee's Administrative Powers............................. 8
-------------------------------
5.4. Voting and Tendering of Company Stock....................... 9
-------------------------------------
5.5. Indemnification............................................. 10
---------------
5.6. General Duty to Communicate to Committee.................... 11
----------------------------------------
ARTICLE 6.
- ----------
Accounts and Reports of Trustee.......................................... 12
- -------------------------------
6.1. Records and Accounts of Trustee............................. 12
-------------------------------
6.2. Fiscal Year................................................. 12
-----------
6.3. Reports of Trustee.......................................... 12
------------------
6.4. Final Report................................................ 12
------------
ARTICLE 7.
- ----------
Succession of Trustee.................................................... 12
- ---------------------
7.1. Resignation of Trustee...................................... 12
----------------------
7.2. Removal of Trustee.......................................... 13
------------------
7.3. Appointment of Successor Trustee............................ 13
--------------------------------
7.4. Succession to Trust Fund Assets............................. 13
-------------------------------
7.5. Continuation of Trust....................................... 13
---------------------
7.6. Changes in Organization of Trustee.......................... 13
----------------------------------
7.7. Continuance of Trustee's Powers in Event of
-------------------------------------------
- i -
Termination of the Trust.................................... 14
------------------------
7.8. Corporate Trustee........................................... 14
-----------------
ARTICLE 8.
- ----------
Amendment or Termination................................................. 14
- ------------------------
8.1. Amendments.................................................. 14
----------
8.2. Termination................................................. 14
-----------
8.3. Form of Amendment or Termination............................ 15
--------------------------------
ARTICLE 9.
- ----------
Miscellaneous............................................................ 15
- -------------
9.1. Controlling Law............................................. 15
---------------
9.2. Committee Action............................................ 15
----------------
9.3. Notices..................................................... 15
-------
9.4. Severability................................................ 16
------------
9.5. Protection of Persons Dealing with the Trust................ 16
--------------------------------------------
9.6. Tax Status of Trust......................................... 16
-------------------
9.7. Participants to Have No Interest in the
---------------------------------------
Company by Reason of the Trust.............................. 16
------------------------------
9.8. Nonassignability............................................ 17
----------------
9.9. Gender and Plurals.......................................... 17
------------------
9.10. Counterparts................................................ 17
------------
- ii -
MINE SAFETY APPLIANCES COMPANY
STOCK COMPENSATION TRUST
------------------------
THIS TRUST AGREEMENT (the "Agreement") made effective as of June 1,
1996, between Mine Safety Appliances Company, a Pennsylvania corporation, and
PNC Bank, N.A., as trustee.
W I T N E S S E T H :
-------------------
WHEREAS, the Company (as defined below) desires to establish a trust
(the "Trust") in accordance with the laws of the Commonwealth of Pennsylvania
and for the purposes stated in this Agreement;
WHEREAS, the Trustee (as defined below) desires to act as trustee of
the Trust, for the purposes hereinafter stated and in accordance with the terms
hereof;
WHEREAS, the Company or its subsidiaries have previously adopted the
Plans (as defined below);
WHEREAS, the Company desires to provide assurance of the availability
of the shares of its common stock necessary to satisfy certain of its
obligations or those of its subsidiaries under the Plans (as defined below);
WHEREAS, the Company desires that the assets to be held in the Trust
Fund (as defined below) should be principally or exclusively securities of the
Company and, therefore, expressly waives any diversification of investments that
might otherwise be necessary, appropriate, or required pursuant to applicable
provisions of law, if any; and
WHEREAS, PNC Bank, N.A., has been appointed as trustee and has
accepted such appointment as of the date set forth first above;
NOW, THEREFORE, the parties hereto hereby establish the Trust and
agree that the Trust will be comprised, held and disposed of as follows:
ARTICLE 1.
----------
Trust, Trustee and Trust Fund
-----------------------------
1.1. Trust. This Agreement and the Trust shall be known as the Mine
-----
Safety Appliances Company Stock Compensation Trust. The parties intend that the
Trust will be an independent legal entity with title to and power to convey all
of its assets. The parties hereto further intend that the trust not be subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Trust is not a part of any of the Plans (as herein defined). The assets of
the Trust will be held, invested and disposed of by the Trustee, in accordance
with the
terms of the Trust. The Company will not knowingly take any action that would
cause the assets held pursuant to the Trust to become "plan assets" within the
meaning of ERISA without so advising the Trustee. The Trust is intended to be a
"grantor trust" within the meaning of Section 671 of the Internal Revenue Code
of 1986.
1.2. Trustee. The trustee named above, and its successor or
-------
successors, is hereby designated as the trustee hereunder, to receive, hold,
invest, administer and distribute the Trust Fund in accordance with this
Agreement, the provisions of which shall govern the power, duties and
responsibilities of the Trustee.
1.3. Trust Fund. The assets held at any time and from time to time
----------
under the Trust collectively are herein referred to as the "Trust Fund" and
shall consist of contributions received by the Trustee, proceeds of any loans,
investments and reinvestment thereof, the earnings and income thereon, less
disbursements therefrom. Except as herein otherwise provided, title to the
assets of the Trust Fund shall at all times be vested in the Trustee and
securities that are part of the Trust Fund shall be held in such manner that the
Trustee's name and the fiduciary capacity in which the securities are held are
fully disclosed, subject to the right of the Trustee to hold title in bearer
form or in the name of a nominee, and the interests of others in the Trust Fund
shall be only the right to have such assets received, held, invested,
administered and distributed in accordance with the provisions of the Trust.
1.4. Trust Fund Subject to Claims. Notwithstanding any provision of
----------------------------
this Agreement to the contrary, the Trust Fund shall at all times remain subject
to the claims of the Company's general creditors under federal and state law.
In addition, the Board of Directors and Chief Executive Officer of the
Company shall have the duty to inform the Trustee in writing of the Company's
Insolvency (as defined below). If a person claiming to be a creditor of the
Company alleges in writing to the Trustee that the Company has become Insolvent,
the Trustee shall determine whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue allocations pursuant to Article 3.
Unless the Trustee has actual knowledge of the Company's Insolvency,
or has received notice from the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may in all events rely on
such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's Insolvency.
If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue allocations
- 2 -
pursuant to Article 3 and shall hold the Trust Fund for the benefit of the
Company's general creditors. Nothing in this Trust Agreement shall in any way
diminish any rights of employees as general creditors of the Company with
respect to benefits due under the Plans or otherwise.
The Trustee shall resume allocations pursuant to Article 3 only after
the Trustee has determined that the Company is not Insolvent or is no longer
Insolvent as the case may be.
1.5 Use of Trust. The Trust Fund shall be used for the exclusive
------------
purpose of aiding the Company in delivering the benefits provided by the Plans
and defraying the expenses of the Trust in accordance with this Trust Agreement.
The Company may terminate the Trust in accordance with Section 8.2 hereof, but,
income or corpus of the Trust Fund is recoverable by the Company only as
provided in Section 2.2 and 8.2.
1.6. Definitions. In addition to the terms defined in the preceding
-----------
portions of the Trust, certain capitalized terms have the meanings set forth
below:
Board of Directors. "Board of Directors" means the board of
------------------
directors of the Company.
Change of Control. "Change of Control" means any of the
-----------------
following events:
(a) an acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined
voting power of the then outstanding voting securities of the Company; provided,
--------
however, that the following acquisitions shall not constitute a Change of
- -------
Control: (i) an acquisition by or directly from the Company, (ii) an
acquisition by any employee benefit plan or trust sponsored or maintained by the
Company; and (iii) any acquisition described in subclauses (A) or (B) of
subsection (b) below; or
(b) approval by the stockholders of the Company of (i) a
complete dissolution or liquidation of the Company, (ii) a sale or other
disposition of all or substantially all of the Company's assets or (iii) a
reorganization, merger, or consolidation ("Business Combination") unless either
(A) all or substantially all of the stockholders of the Company immediately
prior to the Business Combination own more than 50% of the voting securities of
the entity surviving the Business Combination, or the entity which directly or
indirectly controls such surviving entity, in substantially the same pro-portion
as they owned the voting securities of the Company immediately prior thereto, or
(B) the consideration (other than cash paid in lieu of fractional shares or
payment upon perfection of appraisal rights) issued to stockholders of the
Company in the Business Combination is solely
- 3 -
common stock which is publicly traded on an established securities exchange in
the United States.
Code. "Code" means the Internal Revenue Code of 1986, as
----
amended.
Committee. "Committee" means a committee of officers or other
---------
individuals, subject to Section 9.2, appointed by the Board of Directors from
time to time to administer the Trust.
Company. "Company" means Mine Safety Appliances Company, a
-------
Pennsylvania corporation, or any successor thereto. References to the Company
shall include its subsidiaries where appropriate.
Company Stock "Company Stock" means shares of common stock,
-------------
no par value, issued by the Company or any successor securities.
Extraordinary Dividend. "Extraordinary Dividend" means any
----------------------
dividend or other distribution of cash or other property (other than Company
Stock) made with respect to Company Stock, which the Board of Directors declares
generally to be other than an ordinary dividend.
Fair Market Value. "Fair Market Value" means as of any date the
-----------------
closing price quotation, or, if none, the average of the bid and asked prices,
as reported with respect to the Company Stock on the most recently available
date, on any national exchange on which the Company Stock is then listed, or if
not so listed, on the NASDAQ National Market, or other consolidated reporting
system reporting trades of the Company Stock. If the Company Stock is not so
listed, "Fair Market Value" shall mean the average of the bid and asked prices
as quoted by all market makers in the Company Stock. In the event that a market
for the Company Stock does not exist, the Committee may determine, in any case
or cases, that "Fair Market Value" shall be determined on the basis of the
opinion of one or more independent and reputable appraisers qualified to value
companies in the Company's line of business.
Insolvency. "Insolvency" means (i) the inability of the Company
----------
to pay its debts as they become due, or (2) the Company being subject to a
pending proceeding as a debtor under the provisions of Title 11 of the United
States Code (Bankruptcy Code).
Loan. "Loan" means the loan and extension of credit to the Trust
----
evidenced by a promissory note dated as of the date of the Closing (as defined
in the Stock Purchase Agreement dated June 4, 1996 between the Trust and the
Company), with which the Trustee will purchase Company Stock.
- 4 -
Option Grant. "Option Grant" means an option granted under one
------------
of the Plans to a Plan Participant to acquire shares of Company Stock.
Plan Committee Certification. "Plan Committee Certification"
----------------------------
means a certification to be provided to the Trustee by the Committee from time
to time which (i) sets forth the number of shares of Company Stock to be
transferred to a Plan Participant, and (ii) certifies that the determination of
such number is in accordance with the terms of each Plan.
Plans. "Plans" means the employee plans listed on Schedule A
-----
hereto and any other employee benefit plan of the Company or its subsidiaries
designated as such by the Board of Directors.
Plan Participant. "Plan Participant" means an individual who
----------------
has an Option Grant under any of the Plans.
Suspense Account. "Suspense Account" means the account in which
----------------
shares of Company Stock acquired with the Loan are held until they are released
pursuant to Section 3.1.
Trustee. "Trustee" means PNC Bank, N.A., or any successor
-------
trustee.
Trust Year. "Trust Year" means the period beginning on the
----------
date of the Closing (the "Closing Date") and ending on the next following
December 31st and on each December 31st thereafter.
ARTICLE 2.
----------
Contributions and Dividends
---------------------------
2.1. Contributions. For each Trust Year the Company shall contribute
-------------
to the Trust in cash such amount, which together with dividends, as provided in
Section 2.2, and any other earnings of the Trust, shall enable the Trustee to
make all payments of principal and interest due under the Loan on a timely
basis. Unless otherwise expressly provided herein, the Trustee shall apply all
such contributions, dividends and earnings to the payment of principal and
interest due under the Loan. If, at the end of any Trust Year, no such
contribution has been made in cash, such contribution shall be deemed to have
been made in the form of forgiveness of principal and interest on the Loan to
the extent of the Company's failure to make contributions as required by this
Section 2.1. The Company may from time to time, in its sole discretion, make
additional contributions to the Trust for the purpose of enabling the Trust to
make prepayments of principal with respect to the Loan (a "Prepayment
Contribution"). The Trustee shall immediately use any Prepayment Contribution to
make a prepayment of principal with respect to the Loan. All contributions made
under the Trust shall be delivered to the
- 5 -
Trustee. The Trustee shall be accountable for all contributions received by it,
but shall have no duty to require any contributions to be made to it.
2.2. Dividends. Except as otherwise provided herein, dividends paid
---------
in cash on Company Stock held by the Trust, including Company Stock held in the
Suspense Account, shall be applied to pay interest and repay scheduled principal
due under the Loan. In the event that dividends paid on Company Stock held in
the Trust, other than Extraordinary Dividends, exceed the amount of scheduled
principal and interest due in any Trust Year, such excess shall be used to
purchase additional shares of Company Stock and/or shall be distributed to a
broad cross-section of individuals employed by the Company, as determined in
good faith by the Committee. Dividends which are not in cash or in Company
Stock (including Extraordinary Dividends, or portions thereof) shall be reduced
to cash by the Trustee and reinvested in Company Stock as soon as practicable.
For purposes of this Agreement, Company Stock purchased with the proceeds of an
Extraordinary Dividend, any excess dividend or with the proceeds of a non-cash
dividend shall for purposes of this Agreement (including without limitation
Section 3.1 hereof), be deemed to have been acquired with the proceeds of the
Loan. In the Trustee's discretion, investments in Company Stock may be made
through open-market purchases, private transactions or (with the Company's
consent) purchases from the Company.
ARTICLE 3.
----------
Release and Allocation of Company Stock
---------------------------------------
3.1. Release of Shares. Upon any payment (including a prepayment) or
-----------------
forgiveness in any Trust Year of any principal on the Loan (a "Principal
Payment"), the following number of shares of Company Stock acquired with the
proceeds of the Loan shall be available for allocation ("Available Shares") as
provided in this Article 3: the number of shares so acquired and held in the
Suspense Account immediately before such payment or forgiveness, multiplied by a
fraction the numerator of which is the amount of the Principal Payment and the
denominator of which is the sum of such Principal Payment and the remaining
principal of the Loan outstanding after such Principal Payment.
3.2. Allocations. Available Shares shall be allocated as directed by
-----------
a Plan Committee Certification to the Plan Participants at such times as may be
required to provide shares in accordance with the Plans.
ARTICLE 4.
----------
Compensation, Expenses and Tax Withholding
------------------------------------------
4.1. Compensation and Expenses. The Trustee shall be entitled to
-------------------------
such reasonable compensation for its services as may
- 6 -
be agreed upon from time to time by the Company and the Trustee and to be
reimbursed for its reasonable legal, accounting and appraisal fees, out-of-
pocket expenses and other charges reasonably incurred in connection with the
administration, management, investment and distribution of the Trust Fund. Such
compensation shall be paid, and such reimbursement shall be made out of the
Trust Fund. The Company agrees to make sufficient contributions to the Trust to
pay such amounts owing the Trustee in addition to those contributions required
by Section 2.1 and, in the event the Company fails to make the contributions
necessary to pay amounts owing to the Trustee, the Trustee shall be entitled to
seek payment directly from the Company or the Trust Fund.
4.2. Withholding of Taxes. The Trustee may withhold, require
--------------------
withholding, or otherwise satisfy its withholding obligation, on any
distribution which it is directed to make. The amount to be withheld shall be
such amount as the Company advises the Trustee it reasonably estimates to be
necessary to comply with applicable federal, state and local withholding
requirements. Upon determination of the tax withholding liability, the Trustee
shall distribute the balance of the distribution to the appropriate Participant
and deliver to the Company the amount necessary to satisfy any withholding
obligation. The Company will then deliver the withholding amount to the
appropriate governmental entity. Prior to making any distribution hereunder,
the Trustee may require such indemnity, as the Trustee shall reasonably deem
necessary for its protection.
ARTICLE 5.
----------
Administration of Trust Fund
----------------------------
5.1. Management and Control of Trust Fund. Subject to the terms of
------------------------------------
this Agreement, the Trustee shall have exclusive authority and responsibility to
manage and control the assets of the Trust Fund. The Trustee's duties shall be
limited to those duties specified in this Agreement.
5.2. Investment of Funds. Except as otherwise provided in Section
-------------------
2.2 and in this Section 5.2, the Trustee shall invest and reinvest the Trust
Fund exclusively in Company Stock, including any accretions thereto resulting
from the proceeds of a tender offer, recapitalization or similar transaction
which, if not in Company Stock, shall be reduced to cash as soon as practicable.
To the extent the Trust Fund is invested in Company Stock, the Company waives
any diversification of investments that might otherwise be necessary,
appropriate or required pursuant to applicable law. The Trustee may invest any
portion of the Trust Fund temporarily pending investment in Company Stock,
distribution or payment of expenses in (i) investments in United States
Government obligations with maturities of less than one year, (ii) interest-
bearing accounts including but not limited to
- 7 -
certificates of deposit, time deposits, saving accounts and money market
accounts with maturities of less than one year in any bank, including the
Trustee, with aggregate capital in excess of $1,000,000,000 and a Moody's
Investor Services rating of at least P1, or an equivalent rating from a
nationally recognized ratings agency, which accounts are insured by the Federal
Deposit Insurance Corporation or other similar federal agency, (iii) obligations
issued or guaranteed by any agency or instrumentality of the United States of
America with maturities of less than one year, (iv) short-term discount
obligations of the Federal National Mortgage Association or (v) any mutual fund
or funds which invests primarily in one or more of the above-described
investments, including funds for which Trustee or its affiliates provide
investment advisory, custodian, transfer agent or other services.
5.3. Trustee's Administrative Powers. Except as otherwise provided
-------------------------------
herein, and subject to the Trustee's duties hereunder, the Trustee shall have
the following powers and rights, in addition to those provided elsewhere in this
Agreement or by law:
(a) to retain any asset of the Trust Fund;
(b) subject to Section 5.4 and Article 3, to sell, transfer, mortgage,
pledge, lease or otherwise dispose of, or grant options with respect to, any
Trust Fund assets at public or private sale;
(c) upon direction from the Committee, to borrow from any lender
(including the Company pursuant to the Loan), to acquire Company Stock at Fair
Market Value as authorized by this Agreement, to enter into lending agreements
upon such terms (including reasonable interest and security for the loan and
rights to renegotiate and prepay such loan) as may be determined by the
Committee; provided, however, that any collateral given by the Trustee for the
Loan shall be limited to cash and property contributed by the Company to the
Trust and dividends paid on Company Stock held in the Trust and shall not
include Company Stock acquired with the proceeds of Loan;
(d) with the consent of the Committee, to settle, submit to
arbitration, compromise, contest, prosecute or abandon claims and demands in
favor of or against the Trust Fund;
(e) to vote or to give any consent with respect to any securities,
including any Company Stock, held by the Trust either in person or by proxy for
any purpose, provided that the Trustee shall vote, tender or exchange all shares
of Company Stock as provided in Section 5.4;
(f) to exercise any of the powers and rights of an individual owner
with respect to any asset of the Trust Fund
- 8 -
and to perform any and all other acts that in its judgment are necessary or
appropriate for the proper administration of the Trust Fund, even though such
powers, rights and acts are not specifically enumerated in this Agreement;
(g) to employ such accountants, actuaries, investment bankers,
appraisers, other advisors and agents as may be reasonably necessary in
collecting, managing, administering, investing, valuing, distributing and
protecting the Trust Fund or the assets thereof or any borrowings of the Trustee
made in accordance with Section 5.3(c); and to pay their reasonable fees and
out-of-pocket expenses, which shall be deemed to be expenses of the Trust and
for which the Trustee shall be reimbursed in accordance with Section 4.1;
(h) to cause any asset of the Trust Fund to be issued, held or
registered in the Trustee's name or in the name of its nominee, or in such form
that title will pass by delivery, provided that the records of the Trustee shall
indicate the true ownership of such asset;
(i) to utilize another entity as custodian to hold, but not invest or
otherwise manage or control, some or all of the assets of the Trust Fund; and
(j) to consult with legal counsel (who may also be counsel for the
Trustee generally) with respect to any of its duties or obligations hereunder;
and to pay the reasonable fees and out-of-pocket expenses of such counsel, which
shall be deemed to be expenses of the Trust and for which the Trustee shall be
reimbursed in accordance with Section 4.1.
Notwithstanding the foregoing, neither the Trust nor the Trustee shall have any
power to, and shall not, engage in any trade or business.
5.4. Voting and Tendering of Company Stock.
--------------------------------------
(a) Voting of Company Stock. The Trustee shall follow the directions
-----------------------
of each Plan Participant other than Plan Participants who are members of the
Board of Directors of the Company (such non-members being hereinafter the
"Directing Plan Participants"), as to the manner in which shares of Company
Stock held by the Trust are to be voted on each matter brought before an annual
or special stockholders' meeting of the Company or the manner in which any
consent is to be executed, in each case as provided below. Before each such
meeting of stockholders, the Trustee shall cause to be furnished to each
Directing Plan Participant, a copy of the proxy solicitation material received
by the Trustee, together with a form requesting confidential instructions as to
how to vote the shares of Company Stock held by the Trustee. Upon timely
receipt of directions from the Directing Plan Participants, the Trustee shall on
each such
- 9 -
matter vote the number of shares (including fractional shares) of Company Stock
held by the Trust as follows:
The Company Stock shall be voted by the Trustee as directed by the
Directing Plan Participants with each Directing Plan Participant directing a
number of shares of Company Stock (the "Participant Directed Amount") equal to
the quotient of (x) the total number of shares of Company Stock held by the
Trust and (y) the number of Directing Plan Participants on the relevant date.
Any Shares for which the Trustee does not receive a signed voting-direction
instrument shall be voted for, against or to abstain in the same proportions as
those shares of Company Stock for which the Trustee did receive instructions.
Similar provisions shall apply in the case of any action by
shareholder consent without a meeting.
(b) Tender or Exchange of Company Stock. The Trustee shall use its
-----------------------------------
best efforts timely to distribute or cause to be distributed to each Plan
Participant any written materials distributed to stockholders of the Company
generally in connection with any tender offer or exchange offer, together with a
form requesting confidential instructions as to whether or not to tender or
exchange shares of Company Stock held in the Trust. Upon timely receipt of
instructions from a Directing Plan Participant, the Trustee shall tender such
Directing Participant's Participant Directed Amount if such Directing Plan
Participant has directed the Trustee to tender. The Company will cooperate in
registering the Company Stock held by the Trust which is the subject of a tender
or exchange offer. The Company shall be responsible for all expenses incurred
in connection with the registration of such Company Stock.
(c) The Company shall maintain appropriate procedures to ensure that
all instructions by Directing Plan Participants in the Plans are collected,
tabulated, and transmitted to the Trustee without being divulged or released to
any person affiliated with the Company or its affiliates. All actions taken by
Directing Plan Participants shall be held confidential by the Trustee and shall
not be divulged or released to any person, other than (i) agents of the Trustee
who are not affiliated with the Company or its affiliates or (ii) by virtue of
the execution by the Trustee of any proxy, consent or letter of transmittal for
the shares of Company Stock held in the Trust.
5.5. Indemnification.
---------------
(a) The Company shall and hereby does indemnify and hold harmless the
Trustee from and against any claims, demands, actions, administrative or other
proceedings, causes of action, liability, loss, cost, damage or expense
(including reasonable attorneys' fees), which may be asserted against it, in any
way arising out of or incurred as a result of its action or failure to act in
connection with the establishment, operation and administration of the Trust;
provided that such indemnification
- 10 -
shall not apply to the extent that a court of competent jurisdiction finally
determines that the Trustee has acted (i) negligently, (ii) in violation of
applicable law or its duties under this Trust or (iii) in bad faith. The
Trustee shall be under no liability to any person for any loss of any kind which
may result (i) by reason of any action taken by the Trustee in accordance with
any direction of the Committee or any Directing Plan Participant acting pursuant
to Section 5.4 (ii) by reason of the Trustee's failure to exercise any power or
authority or to take any action hereunder because of the failure of any such
Directing Plan Participant to give directions to the Trustee, as provided for in
this Agreement, or (iii) by reason of any act or omission of any of the
Directing Plan Participants with respect to the Trustee's duties under this
Trust. The Trustee shall be fully protected in acting upon any instrument,
certificate, or paper delivered by the Committee or any Plan Participant or
beneficiary and believed in good faith by the Trustee to be genuine and to be
signed or presented by the proper person or persons, and the Trustee shall be
under no duty to make any investigation or inquiry as to any statement contained
in any such writing, but may accept the same as conclusive evidence of the truth
and accuracy of the statements therein contained.
(b) The Company may, but shall not be required to, maintain liability
insurance to insure its obligations hereunder. If any payments made by the
Company or the Trust pursuant to this indemnity are covered by insurance
maintained by the Company, the Company or the Trust (as applicable) shall be
subrogated to the rights of the indemnified party against the insurance company.
(c) Without limiting the generality of the foregoing, the Company
will, at the request of the Trustee, advance to the Trustee reasonable amounts
of expenses, including reasonable attorneys' fees and expenses, which the
Trustee advises have been incurred in connection with its investigation or
defense of any claim, demand, action, cause of action, administrative or other
proceeding arising out of or in connection with the Trustee's performance of its
duties under this Agreement.
(d) In no event shall the Trustee be liable for consequential
damages.
(e) The Trustee may initiate an action in interpleader with respect
to any issue under this Agreement and the Company shall indemnify the Trustee
from and against any reasonable legal expenses incurred by the Trustee in
connection therewith.
5.6. General Duty to Communicate to Committee. The Trustee shall
----------------------------------------
promptly notify the Committee of all communications with or from any government
agency or with respect to any legal proceeding with regard to the Trust and with
or from any Plan Participants concerning their entitlements under the Plans or
the Trust.
- 11 -
ARTICLE 6.
----------
Accounts and Reports of Trustee
-------------------------------
6.1. Records and Accounts of Trustee. The Trustee shall maintain
-------------------------------
accurate and detailed records and accounts of all transactions of the Trust,
which shall be available at all reasonable times for inspection or audit by any
person designated by the Company and which shall be retained as required by
applicable law.
6.2. Fiscal Year. The fiscal year shall be the same as the Trust
-----------
Year. The fiscal year of the Trust shall be the twelve month period or a
shorter period in the case of the initial fiscal year.
6.3. Reports of Trustee. The Trustee shall prepare and present to
------------------
the Committee a report for the period ending on the last day of each fiscal
year, and for such shorter periods as the Committee may reasonably request,
listing all securities and other property acquired and disposed of and all
receipts, disbursements and other transactions effected by the Trust after the
date of the Trustee's last account, and further listing all cash, securities,
and other property held by the Trust, together with the fair market value
thereof, as of the end of such period. In addition to the foregoing, the report
shall contain such information regarding the Trust Fund's assets and
transactions as the Committee in its discretion may reasonably request.
The Committee may approve of any report furnished by the Trustee
pursuant to the foregoing paragraph either by written statement of approval
furnished to the Trustee or shall be deemed to have approved any such report by
failure to file written objection to the report with the Trustee within one
hundred and eighty (180) days of the date on which the Committee received the
report. The Committee shall not be liable to any person for the approval,
disapproval or failure to approve or object to any report rendered by the
Trustee.
6.4. Final Report. In the event of the resignation or removal of a
------------
Trustee hereunder, the Committee may request and the Trustee shall then with
reasonable promptness submit, for the period ending on the effective date of
such resignation or removal, a report similar in form and purpose to that
described in Section 6.3.
ARTICLE 7.
----------
Succession of Trustee
---------------------
7.1. Resignation of Trustee. The Trustee or any successor thereto
----------------------
may resign as Trustee hereunder at any time upon delivering a written notice of
such resignation, to take effect thirty (30) days after the delivery thereof to
the
- 12 -
Committee, unless the Committee accepts shorter notice; provided, however, that
-------- -------
no such resignation shall be effective until a successor Trustee has assumed the
office of Trustee hereunder.
7.2. Removal of Trustee. The Trustee or any successor thereto may be
------------------
removed by the Company by delivering to the Trustee so removed an instrument
executed by the Committee informing the Trustee of the Committee's decision.
Such removal shall take effect at the date specified in such instrument, which
shall not be less than thirty (30) days after delivery of the instrument, unless
the Trustee accepts shorter notice; provided, however, that no such removal
-------- -------
shall be effective until a successor Trustee has assumed the office of Trustee
hereunder.
7.3. Appointment of Successor Trustee. Whenever the Trustee or any
--------------------------------
successor thereto shall resign or be removed or a vacancy in the position shall
otherwise occur, the Company shall use its best efforts to appoint a successor
Trustee as soon as practicable after receipt by the Committee of a notice
described in Section 7.1, or the delivery to the Trustee of a notice described
in Section 7.2, as the case may be, but in no event more than sixty (60) days
after receipt or delivery, as the case may be, of such notice. A successor
Trustee's appointment shall not become effective until such successor shall
accept such appointment by delivering its acceptance in writing to the Company.
If a successor is not appointed within such 60 day period, the Trustee, at the
Company's expense, may petition a court of competent jurisdiction for
appointment of a successor.
7.4. Succession to Trust Fund Assets. The title to all property held
-------------------------------
hereunder shall vest in any successor Trustee acting pursuant to the provisions
hereof without the execution or filing of any further instrument, but a
resigning or removed Trustee shall execute all instruments and do all acts
necessary to vest title in the successor Trustee. Each successor Trustee shall
have, exercise and enjoy all of the powers, both discretionary and ministerial,
herein conferred upon its predecessors. A successor Trustee shall not be
obliged to examine or review the accounts, records, or acts of, or property
delivered by, any previous Trustee and shall not be responsible for any action
or any failure to act on the part of any previous Trustee.
7.5. Continuation of Trust. In no event shall the legal disability,
---------------------
resignation or removal of a Trustee terminate the Trust, but the Company shall
forthwith appoint a successor Trustee in accordance with Section 7.3 to carry
out the terms of the Trust.
7.6. Changes in Organization of Trustee. In the event that any
----------------------------------
corporate Trustee hereunder shall be converted into, shall merge or consolidate
with, or shall sell or transfer substantially all of its assets and business to,
another corporation, state or federal, the corporation resulting from such
conversion, merger or consolidation, or the corporation to
- 13 -
which such sale or transfer shall be made, shall thereupon become and be the
Trustee under the Trust with the same effect as though originally so named.
7.7. Continuance of Trustee's Powers in Event of Termination of the
--------------------------------------------------------------
Trust. In the event of the termination of the Trust, as provided herein, the
- -----
Trustee shall dispose of the Trust Fund in accordance with the provisions
hereof. Until the final distribution of the Trust Fund, the Trustee shall
continue to have all powers provided hereunder as necessary or expedient for the
orderly liquidation and distribution of the Trust Fund.
7.8. Corporate Trustee. The Trustee or any successor Trustee shall
-----------------
be an independent corporate entity with assets of at least $15 billion.
ARTICLE 8.
----------
Amendment or Termination
------------------------
8.1. Amendments. Except as otherwise provided herein, the Company
----------
may amend the Trust at any time and from time to time in any manner which it
seems desirable, provided that no amendment shall permit the Company to receive
any distribution prohibited by the last sentence of Section 1.5 hereof and no
amendment which would adversely affect the duties of the Trustee shall be made
without the Trustee's written consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the Company shall retain the power
under all circumstances to amend the Trust to correct any errors or clarify any
ambiguities or similar issues of interpretation in this Agreement, except to the
extent any such amendment adversely affects the duties of the Trustee.
8.2. Termination. Subject to the terms of this Section 8.2, the
-----------
Trust shall terminate on the earliest of the date (i) all available shares are
distributed, (ii) on which the Loan is paid in full and (iii) the 20th
anniversary of the effective date of the Trust (the "Termination Date"). The
Company may terminate the Trust at any time prior to the Termination Date. The
Trust shall also terminate automatically upon the Company giving the Trustee
written notice of a Change of Control. Immediately upon a termination of the
Trust, the Company shall be deemed to have forgiven all amounts then outstanding
under the Loan. As soon as practicable after receiving notice from the Company
of a Change of Control or upon any other termination of the Trust, the Trustee
shall sell all of the Company Stock and other non-cash assets (if any) then held
in the Trust Fund provided, that the Trustee will not be required to sell such
Company Stock unless such sale can be completed without violating applicable
securities laws. In the event of a Change of Control or any other termination
of the Trust, the Company will cooperate in registering the Company Stock held
by the Trust. The Company shall be responsible for all expenses
- 14 -
incurred in connection with the registration of such Company Stock. The
proceeds of such sale shall first be returned to the Company up to an amount
equal to the principal amount, plus any accrued interest, of the Loan that was
forgiven upon such termination. Any funds remaining in the Trust after such
payment to the Company (the "Excess Funds") shall be used to fund (1) the
existing obligations of the Company under (i) the Plans and, then, (ii) all
broad-based employee benefit plans maintained by the Company, and (2) the
anticipated future obligations of the Company to the pre Change-of-Control
employee population under one or more broad based employee plans, and, (3) if
any Excess Funds remain, such amount shall be paid directly to the active
participants in the Company's 401(k) defined contribution plan in proportion to
each participant's base pay. Any determination as to which plans are entitled
to funding pursuant to this paragraph or the extent of any obligation to such
plan shall be made by the Committee.
8.3. Form of Amendment or Termination. Any amendment or termination
--------------------------------
of the Trust shall be evidenced by an instrument in writing signed by an
authorized officer of the Company, certifying that said amendment or termination
has been authorized and directed by the Company or the Board of Directors, as
applicable, and, in the case of any amendment, shall be consented to by
signature of an authorized officer of the Trustee, if required by Section 8.1.
ARTICLE 9.
----------
Miscellaneous
-------------
9.l. Controlling Law. The laws of the Commonwealth of Pennsylvania
---------------
shall be the controlling law in all matters relating to the Trust, without
regard to conflicts of law.
9.2. Committee Action. Any action required or permitted to be taken
----------------
by the Committee may be taken on behalf of the Committee by any individual so
authorized. The Company shall furnish to the Trustee the name and specimen
signature of each member of the Committee upon whose statement of a decision or
direction the Trustee is authorized to rely. Until notified of a change in the
identity of such person or persons, the Trustee shall act upon the assumption
that there has been no change. In the event that a Change of Control occurs,
the Board of Directors shall no longer have the authority to remove or appoint
members of the Committee and the members of the Committee in place immediately
preceding such a Change of Control shall continue as such members and shall have
the authority to appoint new members to replace any members who resign or
otherwise cease to be members after the Change of Control.
9.3. Notices. All notices, requests, or other communications
-------
required or permitted to be delivered hereunder
- 15 -
shall be in writing, delivered by registered or certified mail, return receipt
requested as follows:
To the Company
Donald H. Cuozzo, Esquire
Secretary
Mine Safety Appliances Company
P.O. Box 426
Pittsburgh, PA 15230
To the Trustee:
PNC Bank, N.A.
One Oliver Plaza
27th Floor
6th Avenue
Pittsburgh, PA 15222
Attn: Frank Leja, Vice President
Any party hereto may from time to time, by written notice given as aforesaid,
designate any other address to which notices, requests or other communications
addressed to it shall be sent.
9.4. Severability. If any provision of the Trust shall be held
------------
illegal or invalid or unenforceable for any reason, such provision shall not
affect the remaining parts hereof, but the Trust shall be construed and enforced
as if said provision had never been inserted herein.
9.5. Protection of Persons Dealing with the Trust. No person dealing
--------------------------------------------
with the Trustee shall be required or entitled to monitor the application of any
money paid or property delivered to the Trustee, or determine whether or not the
Trustee is acting pursuant to authorities granted to it hereunder or to
authorizations or directions herein required.
9.6. Tax Status of Trust. It is intended that the Company, as
-------------------
grantor hereunder, be treated as the owner of the entire Trust and the trust
assets under Section 671 et seq. of the Code. Until advised otherwise, the
Trustee may presume that the Trust is so characterized for federal income tax
purposes and shall make all filings of tax returns on that presumption.
9.7. Participants to Have No Interest in the Company by Reason of the
----------------------------------------------------------------
Trust. Neither the creation of the Trust nor an anything contained in the Trust
- -----
shall be construed as giving any person, including any individual employed by
the Company or any subsidiary of the Company, any equity or interest in the
assets, business, or affairs of the Company except to the extent that any such
individuals are entitled to exercise stockholder rights with respect to Company
Stock pursuant to Section 5.4.
- 16 -
9.8. Nonassignability. No right or interest of any person to receive
----------------
distributions from the Trust shall be assignable or transferable, in whole or in
part, either directly or by operation of law or otherwise, including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge, or
bankruptcy, but excluding death or mental incompetency, and no right or interest
of any person to receive distributions from the Trust shall be subject to any
obligation or liability of any such person, including claims for alimony or the
support of any spouse or child.
9.9. Gender and Plurals. Whenever the context requires or permits,
------------------
the masculine gender shall include the feminine gender and the singular form
shall include the plural form and shall be interchangeable.
9.10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be considered an original.
IN WITNESS WHEREOF, the Company and the Trustee have caused this
Agreement to be signed, and their seals affixed hereto, by their authorized
officers all as of the day, month and year first above written.
PNC BANK, N.A.
By: /s/ Frank H. Leja
---------------------------
Title: Vice President
------------------------
Attest: /s/Howard H. Giles
-----------------------
Title: Ass't. Vice President
------------------------
MINE SAFETY APPLIANCES COMPANY
By: /s/D. L. Zeitler
---------------------------
Title: Treasurer
------------------------
Attest: /s/D. H. Cuozzo
-----------------------
Title: Secretary
------------------------
- 17 -
SCHEDULE A
Employee Benefit Plans
1. Mine Safety Appliances Company 1987 Management Share Incentive Plan
2. Mine Safety Appliances Company 1990 Non-Employee Directors' Stock Option
Plan.
- 18 -
EXHIBIT 13
Management's Discussion and Analysis
Sales and Earnings
Sales were $500,985,000 in 1996, a 3% increase over the prior year's
$487,668,000. Sales in 1995 were 6% higher than sales in 1994 of $459,607,000.
Net income increased 22% in 1996 to $23,061,000 from $18,912,000 in 1995, which
was 23% higher than 1994's income of $15,329,000. Earnings per share of common
stock was $4.74 in 1996, $3.32 in 1995, and $2.58 in 1994. Earnings per share
have benefitted from share repurchases that have reduced average shares
outstanding 14% in 1996 and 4% in 1995.
The 1996 sales increase occurred primarily in U.S. commercial markets, while
sales to U.S. government agencies once again decreased significantly.
International sales improved only slightly, principally in Europe. As in 1995,
commercial sales in the U.S. continue to be adversely affected by the impasse on
issuance of new Superfund and government site cleanup contracts. The 1995 sales
increase occurred primarily in the international markets, particularly in
Europe. Overall, 1995 sales by U.S. operations were about the same as 1994, with
increases in domestic commercial sales being offset by lower sales to the U.S.
government.
U.S. commercial sales increased almost 6% in 1996, as compared to increases of
4% in 1995 and 9% in 1994. Sales of instruments and specialty chemicals
sustained in 1996 the growth patterns shown in 1995 and 1994. Conversely, lower
government funding and changing customer preferences continue to reduce sales of
respiratory protection equipment. A large part of the comparative sales increase
in 1994 resulted from the acquisition of Hazco Services, Inc. in the last half
of 1993.
Sales by international operations, stated in U.S. dollars, increased 1-1/2% in
1996, 16-1/2% in 1995, and 4-1/2% in 1994. The European economic environment was
stagnant in 1996 after notable market growth occurred in Europe in 1995
following stabilization of economic conditions in 1994. Other international
markets were about the same in 1996 after significant market growth in 1995 and
1994 occurred in Australia, Brazil and Chile.
Shipments of products to U.S. government agencies in 1996 were $30,893,000, an
11% decrease from 1995 sales of $34,815,000, which were 25% lower than 1994
shipments of $46,478,000. These sales represent 6% of consolidated sales in 1996
as compared to 7% in 1995 and 10% in 1994. New contracts received in 1996 were
$14,834,000 as compared to $29,002,000 in 1995 and $27,832,000 in 1994. The 1996
year-end backlog was $14,371,000, a 53% decrease from the 1995 year-end backlog
of $30,430,000.
The 1996 gross profit rate was 38.7%, as compared to 39.1% in 1995 and 37.6% in
1994. The profitability of operations reflects cost reductions from improved
manufacturing and distribution processes, along with careful expense management.
Additionally, commercial sales carry greater margins than military sales; thus
the change of sales mix has also contributed to higher profit margins. The 1996
and 1995 gross profit have also been favorably affected by LIFO credits of
$10,361,000 and $5,455,000, respectively, arising from liquidations of LIFO
inventory values calculated at lower costs incurred in prior years, and
adversely affected by charges of $5,200,000 and $2,140,000, respectively,
arising from inventory valuation adjustments. The completion and partial
termination of some government contracts and ongoing process reengineering has
resulted in significant reductions in U.S. manufacturing inventories.
Depreciation, selling and administrative expenses were 31% of sales in 1996, 32%
in 1995, and 31% in 1994. The after-tax effects of foreign currency exchange
losses charged to income in 1996 reduced net income $667,000 or $.14 per share,
as compared to $1,279,000 or $.23 per share in 1995, and $3,840,000 or $.65 per
share in 1994. The more significant losses resulted from the currency valuation
changes that occurred in Brazil and Mexico in each of the three years. The
effective income tax rates were 37.1% in 1996, 42.9% in 1995, and 40.6% in 1994.
Restructuring
During 1996 the company initiated restructuring efforts to reduce its cost
structure and improve its competitive position. These actions included employee
reductions, writedowns for impaired assets, and facilities consolidation, the
most significant of which is the planned closing of the Esmond, Rhode Island
plant primarily because of the low level of personal protective equipment
business with the U.S. government. Commercial product activities currently
performed at Esmond will be relocated to other safety product manufacturing
facilities.
The more significant costs included in the $7,786,000 charge to 1996 operations
are:
(1) separation pay of $4,581,000, of which $1,303,000 was paid in 1996. The
number of employees affected is approximately 270, of which about 110 had
terminated as of December 31, 1996. These terminations were primarily in
manufacturing operations and administration.
(2) building, machinery and tooling writedowns, the primary non-cash provisions,
of $2,961,000.
10
The accrued termination benefits will be paid during 1997. Other significant
cash outlays over the next one to two years will be incurred for relocation of
people and equipment, site preparation, start-up costs, and new equipment, and
will be charged to income primarily when incurred. The major portion of these
costs are expected to occur in 1997. Anticipated future benefits will result
from the reduced costs associated with a downsized production capacity better
aligned with product demands.
Restructuring charges of $730,000 in 1995 related primarily to workforce
reductions at international locations, whereas charges of $3,086,000 in 1994
were primarily applicable to completing the disposition of assets of the former
Catalyst Research Division, which was closed in 1992.
Financial Condition and Funds Flow
Cash and cash equivalents decreased $6,854,000 during 1996. Accounts receivable
increased $10,785,000 to $101,740,000 at December 31, 1996. Trade receivables
expressed in number of days sales outstanding were 71 days, as compared to 65
days in 1995. Inventories decreased $6,581,000 to $77,040,000 at December 31,
1996, resulting from completion of government contracts, improvements in
manufacturing and distribution processes, and currency exchange rate changes.
Inventory measured against sales turned 6.5 times in 1996 and 5.8 times in 1995.
The working capital ratio was 2.5 and 3.2 to 1 at years-end 1996 and 1995,
respectively.
Short-term debts of international affiliates are payable in local currencies,
which is in keeping with the company's policy of minimizing foreign currency
exposures by offsetting foreign currency assets with foreign currency debt. The
average interest rate on these loans, which include the effects of borrowing in
certain countries where local inflation has resulted in high interest rates, was
approximately 13%.
Long-term debt and the current portion thereof decreased $1,458,000 to
$15,871,000, a conservative 6% of total capital. Total capital is defined as
long-term debt plus current portion of long-term debt and shareholders' equity.
Capital expenditures were $21,583,000 in 1996, as compared to $19,136,000 in
1995. The company has continued its program of plant and equipment modernization
to increase efficiency of existing manufacturing and distribution facilities.
For the most part, capital expenditures were financed internally through
retained earnings. In the past five years, approximately $107 million has been
spent on new plants, equipment and distribution facilities.
Dividends paid on the common stock during 1996 (the 79th consecutive year of a
dividend payment) were $1.10 per share, up from the $1.06 per share paid during
1995 and $.94 per share paid
11
in 1994. Cash dividends have been paid at a conservative percentage of income,
which has permitted the company to finance its growth almost exclusively through
retained earnings. During 1996, the company repurchased 601,962 common shares
for $28,853,000. As of December 31, 1996, an additional 500,000 shares may be
repurchased under current authorizations.
Credit available at year-end with banks was the U.S. dollar equivalent of
$17,157,000. The company's financial position remains strong and should provide
adequate capital resources for growth.
Cumulative Currency Translation Adjustment
The year-end position of the U.S. dollar relative to foreign currencies resulted
in translation losses of $747,000 being charged to the cumulative translation
adjustments shareholders equity account in 1996, as compared to gains of
$2,876,000 in 1995 and $5,050,000 in 1994. Significant losses occurred in
Germany and Japan, offset to some degree by gains in Australia and Britain, in
1996, while significant gains occurred in Germany in 1995 and in Australia,
Britain, and Germany in 1994.
The company's stock transfer agent is Norwest Bank Minnesota, N.A., 161 North
Concord Exchange, P. O. Box 738, South St. Paul, MN 55075-0738.
Common Stock
At December 31, 1996, there were 4,611,125 shares of common stock outstanding.
There were approximately 410 identifiable common stockholders as of November 15,
1996, a recent date for dividends. The common stock last-sale price and up-to-
the-minute volume information (Symbol: MNES) is included in the National
Association of Security Dealers, Inc., (NASDAQ) National Market System. The
quarterly high and low price quotations for common shares follow:
1996 1995
- -----------------------------------------------------------------------------------------------------------
Quarter High Low High Low
- -----------------------------------------------------------------------------------------------------------
First $52-1/4 $45-1/4 $45-3/4 $42-1/2
Second $48 $41 $53 $43-1/2
Third $51-5/8 $41-1/4 $55 $50-1/2
Fourth $55-1/2 $50-1/4 $52-1/4 $41
Common stock quarterly cash dividend information is as follows:
Amount
Per Record Payment
Quarter Share Date Date
- -----------------------------------------------------------------------------------------------------------
1996
- ----
First $ .27 Feb. 16, 1996 March 10, 1996
Second $ .27 May 17, 1996 June 10, 1996
Third $ .28 Aug. 16, 1996 Sept. 10, 1996
Fourth $ .28 Nov. 15, 1996 Dec. 10, 1996
-------
Total $ 1.10
-------
1995
- ----
First $ .25 Feb. 17, 1995 March 10, 1995
Second $ .27 May 12, 1995 June 10, 1995
Third $ .27 Aug. 11, 1995 Sept. 10, 1995
Fourth $ .27 Nov. 17, 1995 Dec. 10, 1995
-------
Total $ 1.06
-------
12
MSA 1996 Financial Review
Report of Management
Mine Safety Appliances Company's consolidated financial statements and related
notes that appear in this Annual Report to Shareholders were prepared by the
company in accordance with generally accepted accounting principles. In
fulfilling its responsibilities for the integrity and objectivity of the
consolidated financial statements, management maintains accounting procedures
designed to provide accurate books, records and accounts which reasonably and
fairly reflect the transactions of the company in a consistent manner on the
accrual basis of accounting.
Company personnel are trained and given responsibilities to ensure adequate
internal accounting controls at a cost commensurate with the risks involved.
Internal accounting controls, monitored by an internal audit staff, provide
reasonable assurances that transactions are executed in accordance with proper
authorization and that adequate accountability for the company's assets is
maintained.
The Board of Directors, through its Audit Committee, is responsible for
assuring that management fulfills its responsibilities in the preparation of the
financial statements. The Audit Committee meets at least twice a year with the
company's independent accountants to discuss the scope of their examination and
any significant findings resulting therefrom.
/s/ James E. Herald
James E. Herald
Vice President--Finance
Chief Financial Officer
Report of Independent Accountants
To the Shareholders and Board of Directors of Mine Safety Appliances Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of earnings retained in the business, and of
cash flows present fairly, in all material respects, the financial position of
Mine Safety Appliances Company and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Pittsburgh, Pennsylvania
February 17, 1997
13
Consolidated Statement of Income
(In thousands, except per share amounts)
Year Ended December 31 1996 1995 1994
Net sales $500,985 $ 487,668 $ 459,607
Other income 5,870 4,191 5,463
--------------------------------
506,855 491,859 465,070
Costs and expenses
Cost of products sold 307,112 296,845 286,725
Selling, general and administrative 133,071 138,187 124,714
Depreciation 22,373 20,002 18,527
Interest 1,595 1,730 2,224
Foreign currency losses 735 1,233 3,968
Facilities consolidation and restructuring charges 7,786 730 3,086
Contract costs recovery (2,484)
--------------------------------
470,188 458,727 439,244
--------------------------------
Income before income taxes 36,667 33,132 25,826
Provision for income taxes 13,606 14,220 10,497
--------------------------------
Net income $ 23,061 $ 18,912 $ 15,329
================================
Earnings per common share $4.74 $3.32 $2.58
================================
Consolidated Statement of Earnings Retained in the Business
(In thousands)
Year Ended December 31 1996 1995 1994
At beginning of year $309,712 $ 296,993 $ 287,286
Net income 23,061 18,912 15,329
Dividends declared
Common (6,811) (6,140) (5,569)
Preferred (64) (53) (53)
--------------------------------
At end of year $325,898 $ 309,712 $ 296,993
================================
See notes to consolidated financial statements.
14
Consolidated Balance Sheet
(In thousands, except per share amounts)
December 31 1996 1995
Assets
Current Assets
Cash $ 7,963 $ 4,807
Temporary investments, at cost which approximates market 17,133 27,143
Receivables, less allowance for doubtful accounts $2,993 and $2,640
101,740 90,955
Inventories 77,040 83,621
Deferred tax assets--net 18,659 16,165
Prepaid expenses and other current assets 5,872 5,934
--------------------
Total current assets 228,407 228,625
--------------------
Property
Land 6,196 6,639
Buildings 106,767 106,927
Machinery and equipment 224,390 218,977
Construction in progress 10,079 6,720
--------------------
Total 347,432 339,263
Less accumulated depreciation (200,374) (188,157)
--------------------
Net property 147,058 151,106
--------------------
Other Assets 32,217 26,869
--------------------
Total $407,682 $ 406,600
====================
Liabilities
Current Liabilities
Notes payable and current portion of long-term debt $ 8,239 $ 6,003
Accounts payable 27,584 24,123
Employees' compensation 13,666 13,109
Insurance 9,965 9,760
Taxes on income 9,156 466
Other current liabilities 23,204 18,523
--------------------
Total current liabilities 91,814 71,984
--------------------
Long-term Debt 13,278 14,746
--------------------
Other Liabilities
Deferred tax liabilities--net 16,781 16,957
Pensions and other employee benefits 43,504 48,276
Other noncurrent liabilities 873 1,097
--------------------
Total other liabilities 61,158 66,330
--------------------
Shareholders' Equity
Preferred stock, 4-1/2% cumulative, $50 par value (callable at $52.50) 3,569 3,569
Common stock, no par value (shares outstanding:
1996--4,611,125; 1995--5,182,757) 10,866 8,300
Stock compensation trust (28,200)
Cumulative translation adjustments 1,430 2,177
Earnings retained in the business 325,898 309,712
Treasury shares, at cost (72,131) (70,218)
--------------------
Total shareholders' equity 241,432 253,540
--------------------
Total $407,682 $ 406,600
====================
See notes to consolidated financial statements.
15
Consolidated Statement of Cash Flows
(In thousands)
Year Ended December 31 1996 1995 1994
Operating Activities
Net income $ 23,061 $ 18,912 $ 15,329
Depreciation 22,373 20,002 18,527
Pensions (2,716) (2,510) (1,305)
Deferred income taxes (2,525) (601) 61
Receivables (10,785) (2,257) (6,801)
Inventories 6,581 (6,655) 4,488
Accounts payable and accrued liabilities 16,157 4,902 6,963
Other assets and liabilities 961 210 (754)
Other--including currency exchange adjustments 3,348 3,607 4,163
--------------------------------
Cash Flow From Operating Activities 56,455 35,610 40,671
--------------------------------
Investing Activities
Property additions (21,583) (19,136) (22,614)
Property disposals 1,889 1,811 4,983
Acquisitions and other investing (10,276) (2,170) 6,130
--------------------------------
Cash Flow From Investing Activities (29,970) (19,495) (11,501)
--------------------------------
Financing Activities
Additions to long-term debt 146 218 2,167
Reductions of long-term debt (1,445) (2,078) (13,949)
Cash dividends (5,438) (6,193) (5,622)
Stock options and purchases of company's stock (27,547) (28,030) (8,526)
Changes in notes payable and short-term debt 2,247 (3,973) 2,978
--------------------------------
Cash Flow From Financing Activities (32,037) (40,056) (22,952)
--------------------------------
Effect of exchange rate changes on cash (1,302) 1,471 1,768
--------------------------------
Increase (decrease) in cash and cash equivalents (6,854) (22,470) 7,986
Beginning cash and cash equivalents 31,950 54,420 46,434
--------------------------------
Ending cash and cash equivalents $ 25,096 $ 31,950 $ 54,420
================================
Supplemental cash flow information:
Interest payments $ 1,419 $ 1,922 $ 1,983
Income tax payments 9,893 13,638 13,947
See notes to consolidated financial statements.
16
Notes to Consolidated Financial Statements
Note 1--Basis of Presentation
Significant accounting policies are stated in italics at the applicable notes to
consolidated financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
All significant majority-owned companies are included in the consolidated
financial statements. Investments in which the company has an equity interest of
20% to 50% are carried at equity in net assets. Intercompany transactions are
eliminated in consolidation.
Sales under contracts are recorded at fixed or estimated contract sales prices
as deliveries are made. Contracts requiring performance over several periods are
accounted for by the percentage-of-completion method of accounting. Profits
expected to be realized are based on estimates of total sales and costs at
completion. These estimates are periodically reviewed and revised during the
contract performance period. Adjustments to profits are recorded in the period
in which estimates are revised; losses are recognized in full as they are
identified.
Property is stated at cost. Depreciation is based on estimated useful lives
using accelerated and straight-line methods. Maintenance and repairs are charged
to expense. Renewals and betterments which substantially extend the useful life
of property are capitalized. Profits or losses resulting from dispositions are
included in income.
The financial statements of companies for which the United States dollar is
determined to be the functional currency are translated using current and
historic exchange rates; adjustments related thereto are included in income for
the current period. The financial statements of all other companies are
translated from their functional currency into United States dollars using
current exchange rates; the resultant translation adjustments are not included
in income but are accumulated in a separate equity account. Transaction gains
and losses are recognized in income for the current period.
Cash and cash equivalents in the Consolidated Statement of Cash Flows includes
temporary investments that are readily marketable and have minimal risk as to
change in value. Certain securities have maturities in excess of ninety days;
but, as part of the company's cash management program, maturities are scheduled
based on expected cash needs for the ensuing twelve months.
Earnings per share is computed based upon the weighted average number of common
shares outstanding during each year. Shares held by the stock compensation trust
that have not been committed to be released are not considered as outstanding
shares. The computation recognizes dividends paid on preferred stock but does
not include a negligible dilutive effect of stock options.
Note 2--Other Income
Other income is summarized as follows:
(In thousands)
-------------------------
1996 1995 1994
-------------------------
Interest $ 2,628 $3,585 $3,043
Commissions, royalties
and product services 1,944 1,959 1,940
Dispositions of assets 1,725 (320) 103
Equity in earnings of affiliates 656 (451) 212
Other (1,083) (582) 165
-------------------------
Total 5,870 4,191 5,463
-------------------------
Note 3--Inventories
The U.S. inventories are valued on the last-in, first-out (LIFO) cost method.
Other inventories are valued at the lower of cost, using average or current
standard costs which approximate actual costs on a first-in, first-out (FIFO)
basis, or market, determined by replacement cost or net realizable value.
Significant reductions of domestic inventories during 1996, 1995 and 1994 caused
liquidations of LIFO inventory values calculated at lower costs incurred in
prior years. The effect of these liquidations has been to reduce cost of sales
by $10,361,000 in 1996, $5,455,000 in 1995 and $6,923,000 in 1994, and to
increase net income by $6,217,000 ($1.28 per share), $3,200,000 ($.56 per share)
and $4,189,000 ($.71 per share), respectively.
Inventories are summarized as follows:
(In thousands)
-------------------------
1996 1995 1994
-------------------------
Finished products $32,042 $34,970 $33,576
Work in process 15,311 16,135 14,013
Raw materials and supplies 29,687 32,516 29,377
-------------------------
Total inventories 77,040 83,621 76,966
-------------------------
Excess of FIFO costs over LIFO costs 45,740 55,185 59,178
-------------------------
Inventories stated on the LIFO basis represent 39%, 39%, and 43% of the total
inventories at December 31, 1996, 1995, and 1994, respectively.
Note 4--Long-Term Debt
(In thousands)
----------------
U.S. 1996 1995
----------------
Industrial development debt issues
payable through 2022, 4.6% $10,950 $10,750
Other, 2.2% to 16.9% 218 336
International companies
Various notes payable through 1998,
5.3% to 9.0% ($3,348 secured
by pledge of assets located abroad) 4,703 6,243
----------------
Total 15,871 17,329
Amounts due within one year 2,593 2,583
----------------
Long-term debt 13,278 14,746
----------------
Approximate maturities of these obligations over the next five years are
$2,593,000 in 1997, $1,142,000 in 1998, $404,000 in 1999, $330,000 in 2000, and
$326,000 in 2001. Some U.S. loan agreements contain covenants to maintain
specified levels of shareholders' equity.
17
Note 5--Business Segments and International Operations
The company is primarily engaged in the manufacture and sale of safety and
health equipment. Principal products include respiratory protective equipment,
head protection, eye and face protection, hearing protectors, safety clothing,
industrial emergency care products, mining safety equipment and monitoring
instruments. These safety and health products account for more than 90% of
revenues, operating profits and assets. Other products which do not fall within
the safety and health equipment segment of the company's business include boron-
based and other specialty chemicals.
Information about the company's operations in different geographic areas is
summarized as follows:
(In thousands)
------------------------------
1996 1995 1994
------------------------------
Net Sales and Revenues
U.S. operations $283,805 $274,148 $277,591
European operations 139,083 135,367 114,030
Other non-U.S. operations 79,371 79,164 70,091
------------------------------
Net Sales and Revenues 502,259 488,679 461,712
------------------------------
Intercompany Transfers
U.S. operations 24,364 22,779 19,067
European operations 17,588 18,014 13,601
Other non-U.S. operations 769 795 625
------------------------------
Intercompany Transfers 42,721 41,588 33,293
------------------------------
Operating Profit and Income Before Income Taxes
U.S. operations 30,048 22,870 20,195
European operations 4,810 4,984 3,896
Other non-U.S. operations 4,980 6,475 4,624
Eliminations (897) (1,970) (935)
------------------------------
Operating Profit 38,941 32,359 27,780
Interest expense (1,595) (1,730) (2,224)
Corporate income/(expense)--net (679) 2,503 270
------------------------------
Income Before Income Taxes 36,667 33,132 25,826
------------------------------
Identifiable Assets and Total Assets
U.S. operations 246,329 234,237 236,286
European operations 104,676 106,854 96,963
Other non-U.S. operations 45,799 44,050 38,615
Eliminations (19,211) (14,684) (14,476)
------------------------------
Identifiable Assets 377,593 370,457 357,388
Corporate assets 30,089 35,820 58,455
Discontinued operations 323 1,208
------------------------------
Total Assets 407,682 406,600 417,051
------------------------------
Net Assets of Non-U.S. Operations 103,018 99,163 92,285
------------------------------
Net Income of Non-U.S. Operations 8,882 6,364 4,675
------------------------------
Transfers between geographic areas are stated at established intercompany
selling prices. Operating profit is total revenues less operating expenses.
Interest income and expense, equity in unconsolidated affiliates, facilities
consolidation and restructuring charges, contract costs recovery, and income
taxes have not been included in computing operating profit. Corporate assets not
included in identifiable assets are principally cash and investments.
Sales by U.S. operations to U.S. government agencies were $30,893,000 in 1996,
$34,815,000 in 1995, and $46,478,000 in 1994.
Note 6--Restructuring
Restructuring charges of $7,786,000 in 1996, most of which relate to the planned
closing of the company's Esmond, Rhode Island safety products manufacturing
facility, include $4,581,000 for separation pay to approximately 270 employees
and $2,961,000 for impaired assets. Charges of $730,000 in 1995 related
primarily to workforce reductions at international locations, and 1994 charges
of $3,086,000 applied primarily to disposition of assets of the Catalyst
Research Division, which was closed in 1992.
Note 7--Research and Development Expense
Research and development costs, charged against income as incurred, were
$19,122,000 in 1996, $20,366,000 in 1995, and $20,575,000 in 1994.
18
Note 8--Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109. Deferred tax balances are stated at tax rates
expected to be in effect when taxes are actually paid or recovered. No provision
is made for undistributed earnings of international companies since little or no
tax would result under applicable existing statutes or because management
intends that these earnings be permanently reinvested for working capital and
capital expenditure requirements.
The U.S. and non-U.S. components of income before income taxes, and provisions
for income taxes are summarized as follows:
(In thousands)
------------------------------
1996 1995 1994
------------------------------
Income Before Income Taxes
U.S. income $ 31,087 $ 28,501 $ 19,933
Non-U.S. income 12,267 11,700 11,177
Currency translation (losses) (641) (887) (3,024)
Eliminations (6,046) (6,182) (2,260)
------------------------------
Income Before Income Taxes 36,667 33,132 25,826
------------------------------
Provisions For Income Taxes
Current
Federal 9,549 8,451 6,220
State 1,634 1,642 1,537
Non-U.S. 4,948 4,728 2,679
------------------------------
Total current provision 16,131 14,821 10,436
------------------------------
Deferred
Federal (900) (584) (801)
State (146) (13) (43)
Non-U.S. (1,479) (4) 905
------------------------------
Total deferred provision (2,525) (601) 61
------------------------------
Provisions for Income Taxes 13,606 14,220 10,497
------------------------------
The components of deferred taxes are as follows:
Deferred tax assets
Postretirement benefits 5,905 5,666 5,903
Inventory reserves and unrealized profits 5,463 5,975 5,344
Vacation allowances 2,023 2,048 2,054
Postemployment benefits 1,251 1,251 1,580
Liability insurance 3,124 3,153 2,319
Loss carryforwards 350 1,785 2,502
Restructuring 1,089
Other 4,900 3,489 3,583
------------------------------
Total deferred tax assets 24,105 23,367 23,285
------------------------------
Deferred tax (liability)--depreciation (22,227) (24,159) (24,588)
------------------------------
Net deferred taxes 1,878 (792) (1,303)
------------------------------
The following is a reconciliation of income taxes calculated at the U.S. Federal
income tax rate of 35% to the provision for income taxes:
Provision for income taxes at statutory rate 12,833 11,596 9,039
State income taxes 967 1,059 971
Currency translation 313 310 1,058
Non-U.S. taxes (995) 694 (293)
Other--net 488 561 (278)
-----------------------
Provision for income taxes 13,606 14,220 10,497
-----------------------
Undistributed earnings of international companies for which U.S. income taxes
have not been provided were $66,690,000 at December 31, 1996.
19
Note 9--Capital Stock
The authorized capital of the company consists of:
. Common stock, no par value--20,000,000 shares
. Second cumulative preferred voting stock, $10 par value--1,000,000 shares
. 4-1/2% cumulative preferred stock, $50 par value--100,000 shares
Common stock activity is summarized as follows:
(In thousands)
Stock Stock ----------------------------------
Shares Compensation Shares In Common Compensation Treasury
Issued Trust Treasury Stock Trust Cost
------------------------------------ ---------------------------------
Balances January 1, 1994 6,713,503 701,875 $ 8,048 $(31,878)
Management Share Incentive Plan forfeitures 632 (27)
Purchased for treasury 195,324 (8,483)
------------------------------------ ---------------------------------
Balances December 31, 1994 6,713,503 897,831 8,048 (40,388)
Stock options exercised 5,900 252
Purchased for treasury 638,815 (28,277)
------------------------------------ ---------------------------------
Balances December 31, 1995 6,719,403 1,536,646 8,300 (68,665)
Management Share Incentive Plan issues 17,050 771
Management Share Incentive Plan forfeitures (560) (25)
Stock options exercised 13,840 602
Sale to Stock Compensation Trust 600,000 (600,000) 1,218 $(28,200) 26,982
Purchased for treasury 601,962 (28,853)
------------------------------------ ---------------------------------
Balances December 31, 1996 6,749,733 600,000 1,538,608 10,866 (28,200) (70,536)
------------------------------------ ---------------------------------
Second cumulative preferred voting stock--none has been issued.
As to the 4-1/2% cumulative preferred stock, 71,373 shares have been issued
(none during the three years ended December 31, 1996), while the amounts held in
treasury at each year end are 1996 - 49,313 shares, $1,595; 1995 - 47,935
shares, $1,553; and 1994 - 47,775 shares, $1,548.
The company has established the Mine Safety Appliances Company Stock
Compensation Trust, the purpose of which is to fund certain benefit plans,
including employee stock options and awards. In June 1996, the company sold
600,000 treasury shares, at market value, to the Trust, in exchange for a
$28,200,000 promissory note, 8% interest, payable to the company.
On February 10, 1997, the company adopted a Shareholder Rights Plan which
includes distribution of rights as a dividend at the rate of one right for each
share of the company's common stock owned on February 21, 1997. Each right will
entitle the holder to buy a fraction of a share of a participating preferred
stock for $225 in the event certain persons or groups acquire 15% or more of the
company's outstanding common stock. Each right will entitle its holder to
purchase common stock having a value twice the exercise price. These rights will
expire on February 21, 2007.
Note 10--Leases
The company leases warehouses, sales offices, manufacturing facilities and
equipment under agreements expiring at various dates through 2001, with renewal
options existing for varying periods. Rental expense for these leases charged to
income was $6,956,000 in 1996, $6,970,000 in 1995, and $6,452,000 in 1994.
Future minimum rental commitments under noncancelable leases are not
significant.
Note 11/Quarterly Financial Information (Unaudited)
(In thousands, except earnings per share)
1996 1995
----------------------------------------------------- ------------------------------------------------
Quarters Quarters
-------------------------------------------- ---------------------------------------
1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
----------------------------------------------------- ------------------------------------------------
Net sales $115,371 $123,879 $121,744 $139,991 $500,985 $118,162 $125,207 $119,995 $124,304 $487,668
Gross profit 41,325 44,491 47,465 60,592 193,873 46,346 48,523 45,110 50,844 190,823
Net income 3,139 3,756 6,116 10,050 23,061 5,718 5,611 3,836 3,747 18,912
----------------------------------------------------- ------------------------------------------------
Earnings per share .61 .76 1.26 2.11 4.74 .98 .96 .67 .71 3.32
----------------------------------------------------- ------------------------------------------------
20
Note 12--Short-Term Debt
Short-term bank lines of credit amounted to $19,131,000 of which $17,157,000 was
unused at December 31, 1996. Generally, these short-term lines of credit are
renewable annually and there are no significant commitment fees or compensating
balance requirements. Short-term borrowings with banks, which exclude the
current portion of long-term debt, were $5,491,000 and $3,362,000 at December
31, 1996 and 1995, respectively. The average month-end balance of total short-
term borrowings during 1996 was $2,912,000 while the maximum month-end balance
of $5,491,000 occurred at December 31, 1996. The average interest rate during
1996 was approximately 13% based upon total short-term interest expense divided
by the average month-end balance outstanding, and 18% at year-end. This average
interest rate is affected by borrowings in certain countries where local
inflation has resulted in relatively high interest rates.
Note 13--Retirement Plans
Substantially all employees are covered by non-contributory pension plans.
Various U.S. employees also participate in a contributory retirement savings
plan wherein employees may contribute from 1% to 10% of their compensation to a
trust fund, to which the company contributes an amount equal to 50% of the
employees' contributions not in excess of 8%. The company's expense for these
plans was $2,798,000 in 1996, $3,069,000 in 1995, and $4,647,000 in 1994.
The non-contributory pension plans are accounted for in accordance with
Statement of Financial Accounting Standards No. 87 which requires use of the
projected unit credit cost method to determine the projected benefit obligation
and plan cost. The principal U.S. plan is funded in compliance with the Employee
Retirement Income Security Act (ERISA). It is the general policy to fund current
costs for the international plans except in Germany, where it is common practice
and permissible under tax laws to accrue book reserves. Non-contributory plan
benefits are generally based on years of service and employees' compensation
during the last years of employment. Benefits are paid from funds previously
provided to trustees or are paid by the company and charged to the book
reserves.
Information pertaining to the non-contributory defined benefit plans is provided
in the following tables.
Cost for Defined Benefits Plans U.S. Plans International Plans
--------------------------------- -------------------------------
(In thousands) 1996 1995 1994 1996 1995 1994
- -------------- --------------------------------- -------------------------------
Service cost--benefits earned during the period $ 3,205 $ 2,826 $ 3,458 $ 2,036 $ 1,939 $ 1,686
Interest cost on projected benefit obligation 9,892 10,023 9,834 4,003 4,055 3,170
Actual (return)/loss on plan assets (33,411) (45,817) (971) (1,861) (1,964) (704)
Net amortization and deferral 15,667 29,169 (13,137) 601 896 (267)
Special pension benefit adjustments associated
with early retirement and restructuring (508)
--------------------------------- -------------------------------
Pension expense (income) (4,647) (4,307) (816) 4,779 4,926 3,885
--------------------------------- -------------------------------
Funding Status and Projected Benefit Obligation
Reconciliation
December 31 (In thousands)
- --------------------------
Actuarial present value of benefit obligations
Accumulated benefit obligation
Vested 119,131 119,959 108,697 38,088 47,125 41,058
Nonvested 1,904 1,962 2,043 9,874 1,230 2,422
--------------------------------- -------------------------------
Total 121,035 121,921 110,740 47,962 48,355 43,480
--------------------------------- -------------------------------
Plan assets at fair value, primarily listed stocks and
bonds 234,591 209,902 173,171 20,744 18,211 16,922
Projected benefit obligation 141,702 146,097 128,389 50,565 54,101 48,112
--------------------------------- -------------------------------
Plan assets in excess of (less than) projected benefit
obligation 92,889 63,805 44,782 (29,821) (35,890) (31,190)
--------------------------------- -------------------------------
The excess (less than) consists of
Unamortized portion of transition gain (loss),
being recognized over future years 6,104 7,017 7,931 (1,111) (1,422) (1,325)
Unrecognized net gain (loss) from past experience
different from that assumed 77,562 52,979 38,144 5,131 (331) (1,719)
Unrecognized prior service cost (2,326) (2,693) (3,074) (675) (815) (544)
Minimum liability for unfunded plans 963 1,301 1,042
(Accrued)/prepaid pension cost included in the
consolidated balance sheet 10,586 5,201 739 (33,166) (33,322) (27,602)
--------------------------------- -------------------------------
Total 92,889 63,805 44,782 (29,821) (35,890) (31,190)
--------------------------------- -------------------------------
Assumed long-term rates of return on assets 9% 9% 9% 8-9% 8-9% 8-9%
Assumed discount rates for future benefits 7-1/2 7-1/4 8-1/4 6.1-8 7-8-1/2 7-8.9
Assumed long-term rates for compensation increases 4-1/2 5 5 3-6 4-6-1/2 4-6
21
Note 14--Postretirement Benefits
The company provides certain health care benefits and limited life insurance for
retired employees and their eligible dependents, the costs for which are
accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 106. SFAS No. 106 requires recognition of retiree health and life
insurance benefits during the employees' service with the company. Further
information about these benefits is provided in the following tables.
Cost for Benefits
(In thousands) 1996 1995 1994
- -------------- ---------------------------
Service cost--benefits earned during the period $ 408 $ 349 $ 471
Interest cost on projected benefit obligation 1,152 1,168 1,198
Amortization of (gain)/loss 40
Special benefit adjustments associated with early retirement and restructuring 36 (247)
---------------------------
Retirement benefits expense 1,596 1,270 1,709
---------------------------
Funded Status and Accumulated Postretirement Benefit Obligation Reconciliation
December 31 (In thousands)
- --------------------------
Accumulated postretirement benefit obligation
Active employees 3,214 3,352 3,188
Other active participants 6,955 7,224 6,098
---------------------------
10,169 10,576 9,286
Retirees 6,268 6,031 5,389
---------------------------
Total 16,437 16,607 14,675
Unamortized (loss) (1,431) (2,241) (222)
---------------------------
Accrued postretirement benefit cost included in consolidated balance sheet 15,006 14,366 14,453
---------------------------
Assumed discount rates for future benefits 7-1/2% 7-1/4% 8-1/4%
---------------------------
Annual rates of increase in the costs of covered health care benefits assumed
for 1996 were 7%, decreasing gradually to 4% for the year 1999 and thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported; a one-percentage-point increase in each year would increase
the accumulated postretirement benefit obligation by $1,157,000 and increase the
current service and interest costs for the year by $147,000.
Note 15--Stock Plans
The company's Management Share Incentive Plan permits the granting of restricted
stock awards and stock options to eligible key employees through December 1997.
The 1990 Non-Employee Directors' Stock Option Plan provides for annual grants of
stock options to eligible directors. As of December 31, 1996, there were 257,090
shares and 37,800 shares, respectively, reserved for future grants pursuant to
these Plans.
Stock options are generally granted at market value option prices and expire
after ten years (limited instances of option prices in excess of market value
and expiration after five years). Restricted stock awards are granted (17,050
shares in 1996) to employees without payment to the company in consideration of
services to be performed in ensuing five-year periods. The company applies
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for the Plans. Accordingly, no compensation cost has been recognized
for the stock option grants. Compensation cost for the restricted stock awards
is measured by the market value of the shares when awarded and is amortized by
charges to operations over the period that the employee provides the service.
The expense charged to operations was $350,000 in 1996, $238,000 in 1995, and
$413,000 in 1994. The company's net income and earnings per share would not be
significantly affected if compensation cost for these Plans was determined based
on fair value at grant dates consistent with the method provided in Statement of
Financial Accounting Standards No. 123.
A summary of the two stock option plans follows:
1996 1995 1994
------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------------------------------------------------------------
Outstanding at beginning of year 46,360 $46.18 49,260 $45.89 32,520 $48.31
Granted 31,455 46.37 3,000 44.00 20,140 44.59
Exercised (13,840) 43.49 (5,900) 42.62
Forfeited (5,610) 47.50 (3,400) 61.33
------------------------------------------------------------------------------------
Outstanding at end of year 58,365 46.77 46,360 46.18 49,260 45.89
------------------------------------------------------------------------------------
Options exercisable at year-end 58,365 44,473 45,101
------------------------------------------------------------------------------------
The options outstanding at December 31, 1996 have a weighted-average remaining
contractual life of approximately 7.3 years and an exercise price range of
$40.43 to $55.75.
22
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
SUMMARY OF OPERATIONS 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
(In thousands, except as noted)
Net sales $500,985 $487,668 $459,607 $429,220 $502,366
- -------------------------------------------------------------------------------------------------------------
Other income 5,870 4,191 5,463 5,885 9,755
- -------------------------------------------------------------------------------------------------------------
Cost of products sold 307,112 296,845 286,725 273,350 327,555
- -------------------------------------------------------------------------------------------------------------
Selling, general and administrative 133,071 138,187 124,714 121,529 130,182
- -------------------------------------------------------------------------------------------------------------
Depreciation 22,373 20,002 18,527 17,294 16,831
- -------------------------------------------------------------------------------------------------------------
Interest expense 1,595 1,730 2,224 1,713 1,536
- -------------------------------------------------------------------------------------------------------------
Foreign currency losses 735 1,233 3,968 3,201 5,507
- -------------------------------------------------------------------------------------------------------------
Unusual items 5,302 730 3,086 (223) 2,700
- -------------------------------------------------------------------------------------------------------------
Taxes on income 13,606 14,220 10,497 7,686 11,107
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations 23,061 18,912 15,329 10,555 16,703
- -------------------------------------------------------------------------------------------------------------
Per common share (in dollars)(1) 4.74 3.32 2.58 1.73 2.67
- -------------------------------------------------------------------------------------------------------------
Discontinued operations (5,067)
- -------------------------------------------------------------------------------------------------------------
Cumulative effect to January 1, 1992 of
changes in accounting principles(2) (8,964)
- -------------------------------------------------------------------------------------------------------------
Net income 23,061 18,912 15,329 10,555 2,672
- -------------------------------------------------------------------------------------------------------------
Per common share (in dollars)(1) 4.74 3.32 2.58 1.73 .42
- -------------------------------------------------------------------------------------------------------------
Cash dividends 5,438 6,193 5,622 5,640 5,608
- -------------------------------------------------------------------------------------------------------------
Per common share (in dollars) 1.10 1.06 .94 .92 .89
- -------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding(1) 4,852 5,681 5,921 6,069 6,225
- -------------------------------------------------------------------------------------------------------------
YEAR-END POSITION
- -------------------------------------------------------------------------------------------------------------
Working capital $136,593 $156,641 $166,494 $164,199 $177,287
- -------------------------------------------------------------------------------------------------------------
Working capital ratio 2.5 3.2 3.4 3.7 4.2
- -------------------------------------------------------------------------------------------------------------
Property, at cost 347,432 339,263 322,109 306,691 305,908
- -------------------------------------------------------------------------------------------------------------
Total assets 407,682 406,600 417,051 407,884 407,772
- -------------------------------------------------------------------------------------------------------------
Long-term debt 13,278 14,746 16,564 27,476 28,868
- -------------------------------------------------------------------------------------------------------------
Common shareholders' equity 240,329 252,368 264,795 258,539 261,927
- -------------------------------------------------------------------------------------------------------------
Equity per common share (in dollars) 52.12 48.69 45.53 43.00 43.09
- -------------------------------------------------------------------------------------------------------------
(1) Earnings per common share are calculated after deducting dividends on
preferred stock and are based on the weighted average number of shares
outstanding during each year. Shares not committed by the Stock Compensation
Trust are not considered as outstanding shares.
(2) Statements of Financial Accounting Standards No. 106 (Postretirement
Benefits), No. 109 (Income Taxes), and No. 112 (Postemployment Benefits)
adopted January 1, 1992.
23
EXHIBIT 21
----------
MINE SAFETY APPLIANCES COMPANY
------------------------------
The registrant's present affiliates include the following:
State or Other
Jurisdiction of
Name Incorporation
---- ---------------
Compania MSA de Argentina S.A. Argentina
MSA (Aust.) Pty. Limited Australia
MSA Export Limited Barbados
MSA do Brasil Ltda. Brazil
MSA Canada Canada
MSA de Chile Ltda. Chile
Baseline Industries, Inc. Colorado
Rose Manufacturing Company Colorado
MSA International, Inc. Delaware
MSA de France France
Auergesellschaft GmbH Germany
MSA-Auer Safety Technology Hungary
MSA Italiana S.p.A. Italy
MSA Japan Ltd. Japan
Better Breathing, Inc. Massachusetts
MSA de Mexico, S.A. de C.V. Mexico
MSA Nederland, B.V. Netherlands
HAZCO Services, Inc. Ohio
MSA del Peru S.A. Peru
MSA-Auer Polska Sp. z o.o. Poland
MSA (Britain) Limited Scotland
MSA S.E. Asia Pte. Ltd. Singapore
MSA Espanola S.A. Spain
AB Tegma Sweden
MSA (Switzerland) Ltd. Switzerland
Aritron Instrument A.G. Switzerland
MSA Zimbabwe (Pvt.) Limited Zimbabwe
- --------------------------------------------------------------------------------
The above-mentioned affiliated companies are included in the consolidated
financial statements of the registrant filed as part of this annual report. The
names of certain other affiliates, which considered in the aggregate as a single
affiliate would not constitute a significant affiliate, have been omitted.
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-22284) of the 1987 Management Share Incentive Plan
and the Registration Statement on Form S-8 (No. 33-43696) of the 1990 Non-
Employee Directors' Stock Option Plan of Mine Safety Appliances Company of our
report dated February 17, 1997, appearing on page 13 of the 1996 Annual Report
to Shareholders of Mine Safety Appliances Company, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on page F-1 of
this Form 10-K.
PRICE WATERHOUSE LLP
600 Grant Street
Pittsburgh, PA 15219
March 26, 1997
5
0000066570
MINE SAFETY APPLIANCES CO
12-MOS
DEC-31-1996
DEC-31-1996
7,963
17,133
104,733
(2,993)
77,040
24,531
347,432
(200,374)
407,682
91,814
13,278
0
3,569
10,866
226,997
407,682
500,985
506,855
307,112
329,485
735
0
1,595
36,667
13,606
23,061
0
0
0
23,061
4.74
4.74
